Union Finance Minister Nirmala Sitharaman is scheduled to review the performance of Regional Rural Banks (RRBs) following the Budget session of Parliament. According to sources familiar with the matter, the review is set to take place after August 13. This evaluation will focus on enhancing the digital capabilities of RRBs, as noted by a senior government official.
Historical Background
RRBs were established in 1975 under the Ordinance promulgated on September 26, 1975, and the Regional Rural Banks Act, 1976. Despite multiple attempts, an email inquiry sent to the finance ministry did not receive a response before the publication deadline.
Concerns and Recommendations
Bank employee associations have previously recommended merging RRBs with their respective sponsor banks. They argue that such mergers would improve the efficiency and viability of the banking sector. According to a joint statement from the All India Bank Officers’ Confederation and the All India Bank Employees Association—representing over 600,000 bank employees—competition among public sector banks (PSBs) and RRBs is causing inefficiencies. They highlight that despite the competition, a significant portion of the rural population lacks access to modern, technology-driven banking products. Merging RRBs with sponsor banks could standardize product offerings, stimulate the rural economy, and enhance priority sector lending, which is essential for the government’s economic growth plans.
Current Status of RRBs
As of March 31, 2023, there were 43 RRBs sponsored by 12 scheduled commercial banks, operating 21,995 branches. These RRBs managed 305.3 million deposit accounts and 29 million loan accounts across 26 states and three Union Territories (Puducherry, Jammu & Kashmir, and Ladakh). Notably, Goa and Sikkim do not have RRBs, and all PSBs, except Punjab & Sind Bank, sponsor one or more RRBs. J&K Bank is the only private sector bank sponsoring an RRB. Approximately 92 percent of RRB branches are located in rural or semi-urban areas.
Financial Performance
During FY23, the total business of RRBs surpassed Rs 10 trillion, with a growth rate of 10.1 percent year-on-year. The asset quality of RRBs improved during this period, with gross non-performing assets (gross NPAs) decreasing to 7.28 percent as of March 31, 2023—marking the lowest level in seven years. Of the 43 RRBs, 34 reported a reduction in absolute gross NPA amounts, and 37 saw a decrease in the percentage of gross NPAs. Additionally, net NPA and provisioning coverage ratio (PCR) improved, standing at 3.2 percent and 59.2 percent, respectively, as of March 31, 2023.
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